European Central Bank Executive Board member Isabel Schnabel has called for central banks to move their own money onto distributed ledgers, arguing that blockchain and smart contracts could fundamentally modernise monetary-policy implementation and financial-market settlement. Speaking at the Jackson Hole Economic Policy Symposium on August 28, Schnabel said central banks should “go on-chain” as tokenisation increasingly moves financial assets onto programmable infrastructure.
Her proposal focuses on wholesale central-bank reserves rather than a retail cryptocurrency or conventional digital euro. Under the model, central-bank money could exist natively on a distributed ledger alongside tokenised securities and commercial-bank money, allowing transactions and monetary-policy operations to execute directly through programmable infrastructure. Schnabel argued that keeping central-bank reserves outside blockchain networks while private financial markets migrate on-chain could weaken public money’s position as the ultimate settlement asset.
Smart Contracts Could Automate Central Bank Operations
The more consequential element of Schnabel’s proposal is programmability. If both reserves and collateral existed on the same programmable infrastructure, a central-bank repo operation could settle atomically, meaning the cash and collateral legs would either execute simultaneously or not execute at all. Smart contracts could also automatically request additional collateral, substitute securities when necessary and apply different remuneration rates. Schnabel argued that such functionality could make central banks more responsive during periods of financial stress.
Tokenised markets may operate faster than conventional financial infrastructure, while automated margin calls could rapidly increase liquidity requirements and trigger asset sales. Central banks may consequently need to supply liquidity more quickly than existing operational systems allow. On-chain infrastructure could allow policy parameters including interest rates, collateral requirements and access conditions to be adjusted with immediate effect. Schnabel cited Project Pine, research conducted by the BIS Innovation Hub and Federal Reserve Bank of New York, as evidence that smart contracts could make monetary-policy operations more flexible. Her proposal also represents a challenge to stablecoins. Schnabel argued that even well-designed stablecoins cannot fully replace central-bank reserves because private issuers lack central banks’ ability to create liquidity elastically during financial stress.
ECB Already Building Toward Tokenised Settlement
The proposal is not purely theoretical. The Eurosystem is pursuing two projects designed to bring central-bank money into tokenised financial markets. Project Pontes is the near-term initiative. Scheduled to launch in September, it will initially connect distributed-ledger platforms with the Eurosystem’s existing TARGET payment infrastructure, allowing DLT-based wholesale transactions to settle in central-bank money. The system is expected to evolve further. The ECB says Pontes will eventually include a Eurosystem-operated DLT platform, with smart-contract functionality and 24/7 operation planned after the initial launch. Legal settlement finality will initially remain anchored in TARGET2 before ultimately moving onto the Eurosystem’s DLT platform. Project Appia addresses the longer-term architecture.
The Eurosystem is examining several models, including a single European ledger containing central-bank money, commercial-bank money and financial assets; a central-bank-operated ledger connected to private networks; or multiple interoperable ledgers. A final Appia blueprint is expected in 2028. Schnabel acknowledged that a unified ledger could reduce fragmentation and interoperability problems but warned that concentrating financial activity on one infrastructure creates questions around resilience, governance and innovation. The ECB’s direction therefore differs from simply connecting traditional payment systems to blockchains.
Its longer-term objective increasingly points toward central-bank money itself becoming tokenised and programmable. That would place public money directly inside the same technological environment increasingly being considered for tokenised bonds, securities and deposits. For cryptocurrency markets, the significance is mixed. Schnabel’s comments represent unusually direct institutional endorsement of distributed-ledger technology and smart contracts from a major central bank. But they also outline a future in which central banks adopt blockchain’s core functionality while ensuring that regulated central-bank and commercial-bank money — rather than private stablecoins — remains at the centre of institutional settlement. The ECB is therefore not proposing to surrender financial infrastructure to crypto. It is proposing to bring central banking on-chain.